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Islands dispute hits China-Japan trade ties

Major firms temporarily shut factories and offices in response to attacks on Japanese shops and diplomatic posts.

17 Sep 2012 17:07 GMT

Escalating tensions in China over disputed islands have forced some Japanese companies there, including electronics-production giants Canon and Panasonic, to suspend work.

As protests continued on Monday over the territorial dispute, China pledged to protect Japanese citizens and property and urged anti-Japan protesters to express themselves in an "orderly, rational and lawful" way.

Hong Lei, a Chinese foreign ministry spokesman, said it was up to Japan to correct its ways, and that the direction of developments was now in Japan's hands.

China's pledge came after Canon announced that it will stop production at three of its four Chinese factories on Monday and Tuesday, citing concerns over employees' safety. Panasonic has taken similar steps at its plants in China.

Uniqlo, the chain of clothing stores owned by Japan's Fast Retailing, has also said they would close 19 outlets in the People's Republic on Tuesday.

Toyota Motor Corp said it is tallying losses from the violence, including a suspected arson attack on a dealershipin eastern China's Shandong province.

Fellow automaker Mazda Motor Corp will close its Nanjing factory for four days starting on Tuesday.

All Nippon Airways Co, Japan's largest airline, reported a rise in cancellations on Japan-bound flights from China.

Anti-Japanese protests across China in recent days erupted over a dispute regarding a group of small islands in the East China Sea claimed by both countries but controlled by Tokyo.

Diplomatic arena

Speaking to Al Jazeera from Singapore, Tony Nash, managing director of business consultancy IHS, said that as a result of the Japanese tsunami and the Thai floods last year, Japanese companies had already started reconsidering new locations for their supply chains, such as Indonesia and Myanmar.

"[But] It is a bit of surprise that it is a reaction to this kind of event," he said.

The ruling Chinese Communist Party, which rarely allows street protests, opened the door to the display of public anger after Japan's decision last week to buy from the private former Japanese owner the chain of islands which Tokyo calls the Senkaku and Beijing calls the Diaoyu.

China responded on Friday by sending patrol ships into the waters around them.

The protests flared in Beijing and other cities on Saturday, when demonstrators besieged the Japanese embassy, hurling rocks, eggs and bottles, and testing cordons of anti-riot police.

Thousands of people continued protesting in Beijing and dozens of other locales on Sunday.

The Japanese government has been warning its citizens about even larger scale protests on Tuesday, when China marks its memorial day for Japan's war-time occupation of parts of China.

Meanwhile, Chinese warships have been conducting live ammunition drills in the East China Sea.

China's warning

The mouthpiece of China's Communist Party said on Monday that Japan's economy could suffer for up to 20 years if China chose to impose sanctions over the escalating territorial row.

Trade sanctions between Asia's two biggest economies could cast a pall over growth on the continent, which major Western countries are counting on to drive recovery from the global slowdown.

Panetta, the US defence secretary, is hoping to calm China-Japan tensions in meetings with Japanese officials in Tokyo [EPA]

A commentary in the People's Daily newspaper said the Japanese economy had already experienced two lost decades from the 1990s and was suffering further weakness in the aftermath of the world financial crisis and 2011 earthquake.

"Japan's economy lacks immunity to Chinese economic measures," the commentary said - although it added that, given the interdependency of the two, sanctions would be a "double-edged sword" for China.

The commentary - which only appeared in the paper's overseas edition - said that China in principle opposes economic sanctions to solve international disputes and would have to weigh carefully any decision to impose them.

"Amidst a struggle that touches on territorial sovereignty, if Japan continues its provocations China will inevitably take on the fight," the commentary said.

Numerous Japanese companies invest in China and two-way trade totalled $342.9bn last year, making Japan China's fourth-largest trade partner, according to Chinese official data.

Nash of IHS said the sight of Japanese investors, and potentially other investors, removing their investments could have a major effect on China over time, Nash said, adding that the world is watching how China handles the situation.

"China is an emerging diplomatic global player and as China addresses this issue, I think the world will watch how they handle it," he told Al Jazeera.

"How they address Japan, how they address the domestic issues around Japanese embassies and commercial interests.

"If China is not perceived as addressing this in a truly diplomatic way, it could really damage their credibility in diplomatic arenas."

Panetta's remarks

Against this backdrop, Leon Panetta, US defence secretary, sought to calm Japan-China tensions in meetings with officials in Tokyo on Monday.

The Pentagon chief, who previously served as director of the CIA, first met Koichiro Gemba, Japan's foreign minister, on Monday and was due to hold a longer session with his counterpart, Satoshi Morimoto.

The US has steered clear of explicitly taking sides on territorial questions and it remained unclear what role it could play in the dispute, given the troubled history between Japan and China - and America's uneasy relations with Beijing.

Nash said that there are diplomatic avenues available to China and Japan through ASEAN or the UN, but noted that a solution to the dispute would not happen overnight.

"These things take a long time. It's not as if this is going to be decided in a day or two days or a week or two weeks - it's going to be months," he told Al Jazeera. "That's the speed at which diplomacy works."